Motel 6 Chain to Be Sold to Blackstone for $1.9 Billion

Blackstone Group LP (BX), the New York-
based private-equity firm that manages $48 billion in real
estate assets, agreed to buy the Motel 6 lodging chain from
Accor SA (AC) for $1.9 billion, adding to its hospitality holdings.

The purchase includes 1,102 Motel 6 and Studio 6 extended-
stay hotels in North America with more than 107,000 rooms,
Paris-based Accor said today in a statement. Accor, Europe’s
largest hotel operator, rose the most in six months.

Blackstone, under real estate chief Jonathan Gray, has been
acquiring hotels and motels, from lower-priced chains like Motel
6 to high-end properties. The firm, which bought Hilton
Worldwide for $20 billion in 2007, is raising a new real estate
fund that probably will surpass its current $10 billion pool.

Blackstone plans to invest “significant capital in the
company’s properties and to accelerate the expansion of the
franchise base,” Gray said in the statement about the Motel 6
acquisition.

The deal is the largest in the U.S. lodging industry since
the $3.93 billion acquisition of Extended Stay America Inc. in
2010, in which Blackstone played a role. The chain was bought
through a bankruptcy restructuring by a group that also included
Centerbridge Capital Partners LLC and Paulson & Co. Blackstone
purchased U.K.-based Mint Hotels in a $950 million deal
announced in September.

Occupancy at U.S. economy hotels rose to 50.6 percent this
year through April from 49.7 percent a year earlier. Revenue per
available room, a measure of occupancy and rates, climbed 5.9
percent to $25.01, according to Smith Travel Research Inc. in
Hendersonville, Tennessee.

Mixed Market

At luxury hotels, occupancy climbed to 72.4 percent from
69.7 percent, while revenue per available room rose 8.9 percent
to $198.55.

“The economy segment doesn’t see the same level of upturns
when the economy is up and not the same downturns when the
economy is in a downward spiral,” said Nikhil Bhalla, a senior
lodging analyst at FBR & Co. in Arlington, Virginia.

Accor Chief Executive Officer Denis Hennequin is pulling
the company out of the low-end of the U.S. lodging market and
focusing on the more profitable Sofitel and Novotel hotel brands
in North America. The proceeds of the sale will reduce the
company’s net debt and lease liabilities by 855 million euros
($1.09 billion) while funding expansion, particularly in Asia.

Accor Surges

“This deal will provide Accor with additional resources to
address the tremendous growth potential in the Asia-Pacific
region, in Latin America and in Europe,” Hennequin said in the
statement.

Accor jumped 5.8 percent, the most since Nov. 3, to 26.03
euros in Paris. Blackstone gained 2.5 percent to $11.99 in New
York trading.

Blackstone, created in 1985 by Stephen Schwarzman and Peter
G. Peterson, has expanded its operations in real estate, credit
investments and hedge funds as traditional corporate buyouts
wane. With a total of $190 billion in assets under management,
it’s the largest firm of its kind, ahead of competitors
including Carlyle Group LP (CG) and KKR & Co., which have pursued
similar diversification strategies.

Accor acquired a controlling stake in the Motel 6 chain in
1990 as part of a debt-fueled international expansion by Paul Dubrule and Gerard Pelisson. The pair founded the company in
1967 with one hotel in Lille, France.

Management Focus

Hennequin is expanding Accor through franchises and
management contracts rather than buying more real estate. The
company said today it will book a one-time loss of 600 million
euros relating to its purchase of fixed-lease hotels.

“This is definitely positive,” Bruno de la Rochebrochard,
an analyst at Bryan Garnier, said in a note to investors
reiterating his buy rating on Accor’s shares. It will reinforce
the “asset light” profile of Accor, where 55 percent of rooms
are managed under contract rather than owned, he said.

Accor would have reported earnings before interest and tax
equal to 9.2 percent of revenue last year if it didn’t own the
U.S. chains, the company said. The reported margin for 2011 was
8.7 percent.

The transaction is scheduled to be completed in October.

Motel 6, founded in 1962 in Santa Barbara, California, take
its name from the original cost of a night’s lodging, according
to its website. The chain’s tagline is “We’ll leave the light
on for you.”

KKR, Colony

Motel 6 also is a familiar name in private-equity circles.
The chain was bought in the 1980s by New York-based KKR, which
sold it to Accor in 1990. Among Accor’s current shareholders is
Los Angeles-based Colony Capital, the private equity real estate
fund run by Thomas Barrack.

In the U.S. lodging industry, there were more than 80
acquisitions announced in the past 12 months with an average
premium of 60 percent at the announcement, including net debt,
according to Bloomberg data. The median deal over the past 10
years paid more than 11 times the target’s earnings before
interest, taxes, depreciation and amortization.